Empty monuments

May 13, 1992

Signs of a local economic rebound are mounting. State and local indexes of leading indicators are moving up smartly. New home sales are brisk. Help wanted advertising is gaining ground. A less visible, little talked about indicator, however, continues to languish -- commercial real estate.

The mindless, greed-induced building binge of the '80s has left the region mired in a commercial real estate depression. Legg Mason's recently released annual Office Industrial Market Review shows vacancies approaching alarming proportions. Howard County closed 1991 with a vacancy rate of better than 20 percent. Baltimore City and Anne Arundel County are somewhere around 19 percent. Carroll County ended the year with an astronomical vacancy rate of more than 50 percent. Even in Baltimore County, where things were a bit more stable, unused space at 14 percent was twice the historical norm.

In virtually every case, particularly that of Baltimore City, the problem is made worse by what's happened to Class B space. Newer, snazzier buildings have sapped up what meager demand there is, putting a severe financial strain on owners of older buildings.

Certainly, the recovery now slowly getting under way will eat into some of the excess. But the overbuilding craze of the decade gone by promises to skew the supply/demand equation for many years to come. With far fewer takers than space available comes the question of what is to be done with properties that are no longer competitive. More importantly, how will local governments -- which derive more than 70 percent of their real estate tax dollars from commercial properties -- cope with a much-changed marketplace?

At this point, the questions greatly outnumber the answers. Worse, there's precious little -- short of a stunning and sustained economic rally -- that can be done about the problem. Suburban governments who saw glass and steel towers as monuments to economic development are now themselves in fiscal extremity. And the see-through office buildings remain empty. If there's a lesson in all this it's that office development follows jobs, it doesn't create them.